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|Title: ||Latent Liquidity: A New Measure of Liquidity, with an Application Corporate Bonds|
|Authors: ||Mahanti, Sriketan|
|Keywords: ||Fixed Income|
|Issue Date: ||7-Nov-2007|
|Series/Report no.: ||FIN-07-012|
|Abstract: ||We present a new measure of liquidity known as “latent liquidity” and apply it to a unique corporate bond database.
Latent liquidity is defined as the weighted average turnover of investors who hold a bond, in which the weights are the
fractional investor holdings. It can be used to measure liquidity in markets with sparse transactions data. For bonds
that trade frequently, our measure has predictive power for both transaction costs and the price impact of trading,
over and above trading activity and bond-specific characteristics thought to be related to liquidity. Additionally, this
measure exhibits relationships with bond characteristics similar to those of other trade-based measures.|
|Appears in Collections:||Finance Working Papers|
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